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As Ethiopia imposes increasing restrictions on foreign-backed NGOs, cooperatives - which have boosted the country's coffee industry - are being championed as a preferred model for economic development.

NGOs have been active in Ethiopia for roughly 40 years, yet the country still ranks in the world's seventh percentile in terms of health, education and living standards, according to the UN Development Programme's human development index. This has led to questions about the effectiveness of NGOs - especially those that are foreign-backed - in creating tangible, long-term progress.

By contrast, say development observers and government advisers, the cooperative model gives ownership of development issues to those affected by them, creating incentives for lasting change. "Cooperatives are businesses owned and run by and for their members… They have an equal say in what the business does and a share in the profits," according to the International Cooperative Alliance (ICA).

But others argue that cooperatives model on its own isn't capable of achieving long-term sustainability, and that many cooperatives remain reliant on NGOs for support. Success, they say, will depend on the combined efforts of cooperatives, NGOs and the Ethiopian government, and even foreign government assistance, where appropriate.

Fraught political history

Both cooperatives and NGOs have had fraught relationships with Ethiopia's political establishment, with cooperatives once perceived as an arm of the government and NGOs now seen as agents of foreign influence.

The cooperative movement in Ethiopia emerged in 1950s, during an effort to transition from subsistence farming to commercial agriculture. In the 1970s, under Mengistu Haile Mariam's socialist-inspired Derg regime, cooperatives were used to implement a series of radical policies, such as the March 1975 Land Reform Bill, which outlawed private land ownership. Farmers were forced to join cooperatives and give up land for collective use; as a result, cooperatives became very unpopular.

The 1991 rebellion that ousted Mengistu paved the way for more democratic, member-constituted cooperatives, even as the government itself came under criticism over its commitment to democracy. General assembly members were elected to determine cooperatives' policies, and cooperatives began to adhere to the principles of the ICA.

Over a decade later, NGOs became targets of government ire. Several were perceived as assisting Prime Minister Meles Zenawi's political opponents during the 2005 election, which nearly saw Meles's defeat, according to Stephan Klingelhofer, senior vice president at Washington-based the International Centre for Not-for-Profit Law.

In the following years, members of organizations such as the Ethiopian Human Rights Council and the Swiss branch of Médecins Sans Frontiers (MSF) faced arrests and detentions. The International Committee of the Red Cross and MSF Belgium were expelled by the government in August and September 2007.

These tensions are now bearing out in how cooperatives and NGOs are viewed. As the successful strategies used by coffee cooperatives are applied to bolster other agricultural sectors - including dairy, wheat and livestock - cooperatives are increasingly seen as alternatives to the kinds of assistance offered by NGOs.

Particularly problematic is that many NGOs are foreign-backed and are not member-oriented, critics say.

"It's a problem of dependency syndrome," said Mesay Kassaye, who works for the Costa Foundation, which assists coffee cooperatives. Kassaye previously worked for the NGO Self Help Africa and argues that too few NGOs promote self-sufficiency. "An NGO would bring all things, so that the community remained like beggars, with no role in development."

Programmes often collapsed when NGOs departed, and some NGOs channel up to 75 percent of their budgets to administrative costs, he says. Cooperatives are an improvement because Ethiopia's chronic problems are better tackled by the long-term capacity-building that cooperatives promote, he contends.

This view is shared by Haile Gebre, who is regarded as the father of Ethiopia's cooperatives. He headed the government's Bureau for Cooperatives in the 1990s, and his policies have resulted in the way cooperatives function today. He concedes the issue is not quite black-and-white: "Nothing is totally wrong or fair - things are relative," he said.

"But if I'd been president of Ethiopia in 1973, I've have banned NGOs from Ethiopia."

NGOs are good for providing temporary support after catastrophes, but for poverty, they aren't the solution, he argues.

Outside help

Yet a variety of NGOs have been responsible for supporting the cooperative model.

"Those cooperatives established by ACE are now leading the economic transformation of the country," Andarge said.

In fact, some cooperatives receive help not only from foreign-based NGOs but from foreign state aid agencies as well.

Since September 2003, the Japan International Cooperation Agency (JICA) has worked alongside the Oromia Forest and Wildlife Enterprise (OFEW), a state-run forest protection organization, and local coffee farmers, helping them produce sustainable coffee for the Japanese market, said Fumiaki Saso, a JICA project coordinator in Jimma, 200km southwest of Addis Ababa.

JICA offered technical support, such as organizing Rainforest Alliance certification and facilitating access to the international market, while OFWE controlled the coffee exportation process. After administrative costs - including JICA's - were covered, 70 percent of remaining revenue went to farmers and 30 percent was retained by OFWE.

In March 2012, full oversight of the project was successfully handed over to OFWE.

Support and oversight needed

The cooperative business model contains both the key to economic success and a raft of potential problems, said cooperative expert Gebre.

"They are self-contained: members are producers, sellers, buyers and consumers, and the cooperative that is member-led and member-oriented will remain efficient and effective," generating profits for members and contributing to self-sufficiency.

But if cooperatives start to focus on profits to the exclusion of their members' needs, they could be transformed into supply-and-demand driven "oligarchies", he said, describing organizations controlled by a select few with no concern for improving members' lives or investing in communities.

"As they get bigger, there may be problems," allowed Kassu Kebede, a programme manager for ACDI/VOCA.

But growth can't be avoided; to compete, the cooperatives will need to diversify and become business-oriented. And it can be handled successfully, he reasoned, citing as an example India, which has cultivated large, business-oriented cooperatives that compete internationally while still serving farmers.

For now, cooperatives still need support from NGOs like ACDI/VOCA and the government, he added, noting that the latter should also provide oversight to ensure cooperatives balance business-oriented growth with the needs of cooperative members.